Mark Richardson is an authority on the topic of targeting profitable remodeling jobs. His company, Case Design/Remodeling in Bethesda, Md., expects to complete around 4,500 projects this year through its design/build firm and its 60 Case Handyman franchises that cover 100 territories nationwide. Case strives to generate net margins of between 7% and 10% on all projects, but Richardson emphasizes that profit is always hard earned because “there is a certain percentage of customers that will let you make money, and a certain percentage that won't.”
Separating the wheat from the chaff within that customer plain is how remodelers reap profitability. Case, for example, relies on computer-aided analyses of its extensive project database to predict future customer buying patterns. Other remodelers take the more basic route of screening potential customers to determine everything from the limitations of their budgets to how easy they would be to work with. These interviews help remodelers avoid customers who might impede their companies' productivity objectives.
That screening process is only one of several steps that lead remodelers to sustainable profit. Another is having a firm understanding of their niche and its attendant operating costs, which has compelled some companies to expand into different businesses that can serve a broader range of homeowners in order to protect their margin structure and preserve their market share. How much remodelers pocket after each job also depends on how efficiently they can manage labor, material costs, customer expectations, and risk; and on their latitude to control projects from contract to completion.Control Group
That control is usually a function of the reputation a remodeling company has cultivated in its market. Rhode Island–based Patrick M. Crowley Inc. focuses exclusively on remodeling medical offices and facilities and is often boxed in by the schedules of its doctor and dentist clientele. That means a lot of night and weekend work that sometimes needs to be done quickly. A 10,000-square-foot cabinet shop provides fabrication and warehousing support that gives this remodeler scheduling flexibility. “What [clients] are paying for is convenience,” says owner Patrick Crowley, whose $1.8 million company does between 18 and 25 jobs per year and whose gross margin goal is between 44% and 50%. “Our best profit comes from jobs no one else wants. ”
Crowley is about to test whether his business model can work in other markets. For nearly two years, he's been “documenting our processes” in anticipation of expanding his brand to as many as 30 territories across the country over the next five years by licensing contractors to remodel offices using his company's design specifications.
Crowley is adamant about retaining control over his designs, and other remodelers agree that their ability to attract lucrative projects starts with the appeal and adaptability of their plans. “We're not looking so much at what customers want, but why they want it,” says Jonas Carnemark, owner of Carnemark Systems + Design in Bethesda, Md. “Is a window for light or for a view? We're trying to solve a problem, and solutions bring high-end jobs.” This firm runs its design department as a profit center that generates about $350,000 at gross margins that exceed 60%, compared to the mid-40% range that Carnemark captures on projects that bring in $3.6 million in annual revenue.Know Thy Clients
Carnemark Systems + Design gets about 80% of its jobs through referrals, which are the marrow of many companies' growth and keep them out of the margin-eroding rat race otherwise known as job bidding. “I get scared when someone calls and says he picked us out of the yellow pages, because we are by no means the lowest price in town,” says Lori Jo Krengel, who owns Kitchens by Krengel, a $2.2 million firm that has operated in the Minneapolis-St. Paul market since 1959 and now gets more than 85% of the 20 or so remodeling projects it does each year through referrals. “In Minnesota, money knows money, and if you do good work for high-net-worth individuals, and take care of customers when something goes wrong, they will come back to you.”
Prime Construction in Burlington, Vt., targets jobs that can produce net margins of between 12% and 15%. “For our design/build and DreamMaker businesses, we don't bid any work,” says owner Michael Gervais, who adds that the initial consulting fees alone that his companies charge scare off one out of every seven potential customers.
DeCiantis Construction generates around three-quarters of its $2 million in annual sales from referrals within the small affluent community surrounding its headquarters in Stonington, Conn. Still, owner John De-Ciantis finds himself filtering a lot of unprofitable business by screening potential clients based on their budgets. “If they are hiring on dollars, we usually take a pass,” says DeCiantis, whose company's gross margins average 40%. “I also prefer to stay away from clients with deadlines, because a $300,000 to $500,000 job can take three to five months.”
Todd Perry, who owns Leading Edge Homes, in West Palm Beach, Fla., a design/build firm that specializes in additions, meets with fewer than half of all callers, whom he charges $200 for an initial visit that can last more than two hours to discuss floor plans and estimates. He then charges a nonrefundable fee of $350 to draw up the plan, which he submits to his suppliers for more accurate costing. About two-fifths of the customers reach this point and sign an agreement, Perry says.
Leading Edge, which generates between $750,000 and $800,000 in annual revenue, operates on gross margins of between 33% and 40% — that's high, says Perry, considering that his projects range from $75,000 to $150,000.
Perry's point, which other remodelers made too, is that smaller jobs can produce higher payoffs.
Oak Design and Construction in Oak Park, Ill., has remodeled “hundreds” of small kitchens and bathrooms, and gross margins on those jobs are generally better than the company's 30% average because “nothing is left unpriced,” explains owner Dave Brady. “We design, specify, and select every product. We know how long the job will take to complete. It's very defined, and there's almost no room for extras.”
Extras, though, are where other remodelers are mining profit. “My ‘niche' is to get clients to add things,” says Joe Bellingham, owner of Bellingham Built, a $1 million remodeling company in Erwinna, Pa. “My clients seem to like when I suggest ideas, and the more jobs where you can do less and can sell more, the more money you make.”
Perry says Leading Edge “makes a killing” on additional work beyond the original plans. But he notes that clients accept his suggested changes only because of the credibility he worked so hard to engender during the project's planning phase. “They love me to death and trust me implicitly,” he says.